The Fed made the widely-anticipated decision to raise interest rates on Wednesday in its effort to return monetary policy to a more normal footing, but signaled no pick-up in the pace of rate hikes.
Some analysts say the BOJ may be forced to raise its yield target to avoid ramping up bond purchases if Japanese long-term interest rates track global bond yield rises, which are being driven by expectations of higher U.S. interest rates.
The BOJ hopes to dispel such speculation and stress it won’t raise its yield target unless the economy strengthens enough to accelerate inflation stably toward 2 percent, say sources familiar with its thinking.
Many BOJ officials say while they are more confident about prospects for Japan’s economic recovery, they see more to fret about on inflation due to slow wage growth, which is holding back consumer spending.
Most major Japanese companies on Wednesday offered the lowest hike in base pay in four years, a setback for Prime Minister Shinzo Abe’s campaign dubbed “Abenomics” to spur the long-sluggish economy.
A rising global tide of protectionism is adding to concerns for Japanese policymakers, given the economy’s heavy reliance on exports and free trade.
A draft communique of the G20 finance leaders’ meeting appeared to accommodate U.S. President Donald Trump’s protectionist views on trade by watering down a commitment to “reject all forms of protectionism.”
Trump also criticized Japan for using “money supply” to weaken the yen and gain an unfair trade advantage. Japanese policymakers have argued that they were playing by G20 rules to use monetary policy only for domestic purposes.
Kuroda may offer clues on how Japan will defend its policies and how strongly it would push back against attempts to water down the G20 commitment on free trade, analysts say.
($1 = 113.3400 yen)
